ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, November 15, 1996 TAG: 9611150061
SECTION: VIRGINIA PAGE: B-1 EDITION: METRO
SOURCE: CODY LOWE STAFF WRITER
A committee representing a group of bondholders who this week were paid $1.1 million by Liberty University is contending that payment doesn't satisfy the terms of their agreement with the Lynchburg school and leaves it open to the possibility of foreclosure.
Instead of making its payment to Trust Management Inc. of Texas as it has in the past, Liberty chose to send payments directly to each of the approximately 2,200 individual bondholders. The checks were accompanied by an offer from the school to buy out their bonds for half of face value.
Mark DeMoss, spokesman for Liberty, said Thursday the largest check was for about $28,000.
"We felt it was the surest way and quickest way to get money to the bondholders," DeMoss said. "It also offered an opportunity to notify all the bondholders of Liberty's ... offer to buy out the bonds. Realizing that the committee had not formally presented that offer to them, we presented it directly."
The bondholders' committee earlier this year rejected the university's offer of $7.5 million in exchange for a release from all its bond-debt obligation - which the committee calculates is more than $20million and the university says is closer to $15million. The committee disputed the university's calculations of payoffs to individual bondholders and refused to agree to keep certain financial information it requested confidential.
DeMoss said Liberty decided to make the payments directly to bondholders after hearing complaints from some of them about the amount of money Trust Management retains for its expenses, as well as expenses of the bonds' trustee and the committee that represents the interests of the bondholders.
An exhibit filed in a recent case in Bedford County Circuit Court showed that Trust Management retained $120,000 in the bondholders' account as of the end of June.
Helen Parrish, the Charlottesville lawyer representing the bondholders' committee, said Thursday that bondholders were specifically informed about the existence of the reserve in 1994 and that it represents a reasonable amount to cover legal fees and other expenses related to administering the trust.
"If the committee has no resources to fund a defense, how will it protect the interests of the bondholders?" Parrish asked.
She also said her understanding is that the university has been continually updated on the status of the Trust Management account - including the reserve.
In any case, Parrish said, it is the position of the bondholders' committee that the university's disbursement of individual checks to the bondholders "is not a payment under the terms of the trust documents" and "does not cure the default."
That objection to the method, DeMoss said, "doesn't change the fact that a payment was made to bondholders. ... I think I'm on solid ground in saying that the bondholders [who received checks] would consider it a payment."
"The committee is staying its course," Parrish said Thursday. It has commissioned an appraisal of the campus, due later this month, and will make a decision on how to proceed based "on solid information about the value of the assets."
In 1992, after the university was unable to meet the scheduled payments on the bonds, the bondholders and the university agreed to a schedule of reduced payments through 2000, when a large balloon payment would be due.
The bondholders' committee notified the university Oct. 11 that it was in default on its payments, and gave the school 30 days to pay up.
The university said it was delaying the payment so as not to jeopardize a loan commitment to fund a bond buyout offer of $7.5 million.
Faced with continued threats to foreclose on the campus, the university announced Monday that it "reluctantly" was paying the $1.1 million that the bondholders said was a year overdue, but did not specify how it was making the payment.
DeMoss said the university would be willing to provide copies of the canceled checks to verify the amount of the payment, and that the university bore the entire expense of mailing.
"We're certainly not trying to be difficult," DeMoss said.
"We have some research to do and some study to do," Parrish said.
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